What happens if your stock splits

So, if you owned 30 shares of a company's stock before such a reverse split went into effect, you'd own 10 shares afterward. It's important to know that a reverse stock split generally but not always happens for a negative reason such as after a big decline in a stock's price. A stock split ratio tells you the number of new shares that will be created after a forward stock split, or by how much the share count will be divided in a reverse stock split.

For example, a 3-for-1 stock split means that two shares will be created for every one currently in existence, for a total of three after the split. It's also important to note that the stock split ratio can tell you whether you're looking at a forward or reverse stock split. Simply put, if the first number is larger as in "3-for-1" , it is a forward split. If the first number is the smaller of the two, it is a reverse split.

The main benefit of a stock split is to make a company's shares cheaper for small investors to buy. Many companies specifically their boards of directors have split their stock periodically throughout their history in order to maintain a desirable share price.

It's important to note that derivative investments such as options will, in turn, become more affordable as well after a stock split. To be clear, a stock split doesn't have any effect on the overall value of your investment, at least in theory. In the real world, the circumstances surrounding the split can certainly move a stock higher or lower.

For example, when a company decides to split its shares in order to make shares more affordable, it can have a positive effect. This opens the stock to an entirely new subset of the investing public namely, those who previously couldn't afford even a single share , which can cause a spike in demand that pushes the stock higher.

If your broker allows you to trade fractional shares , this isn't a concern, but, for many investors, high-dollar stocks are inaccessible.

Stock splits also can convey management's confidence in a stock price, which can trickle down to investors. There are three key dates investors need to know when it comes to stock splits. They are in chronological order :. Announcement date: First, the company will publicly announce the plans for the split, as well as pertinent details investors need to know. This information generally includes the split ratio and when it will happen, including the dates I describe in the next two bullet points.

Record date: This is an important date when it comes to accounting, but it isn't terribly important for investors to know. The record date is when existing shareholders need to own the stock in order to be eligible to receive new shares created by a stock split. This may influence which products we write about and where and how the product appears on a page.

However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money. The investing information provided on this page is for educational purposes only.

NerdWallet does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks or securities. When you had to split something as a kid, that generally didn't feel like a perk. But when you're an investor, splitting can be a good thing. A stock split is a tactic for making a stock more attainable to smaller investors, particularly when its price has ratcheted sky-high over time.

When its stock began trading, that pizza was sliced into a finite number of pieces, or shares, that were offered to investors. If a company announces a 2-for-1 split, the number of shares doubles, so the original pie will be divvied up into 16 slices.

Same amount of pizza, just a different number of slices. It defines a relationship built on trust and duty. We break down the jargon.

Welcome to Stash, our free financial education platform. Stash is not an investment adviser and is distinct from Stash RIA. Nothing here is considered investment advice. What happens to my shares if a stock splits? Was this answer useful? Share this answer. But What is a Share Anyway?